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UK Fast Track Mortgages May Be Entitled To Reprieve

With fast-track mortgages, income verification is not performed for applicants with high credit scores who request low loan-to-value amounts. It appears that these will remain available to borrowers in the UK. The Financial Services Authority (FSA) is currently taking a second look at its proposal requiring lenders to verify income for all mortgage applicants.

In response to draft proposals issued by the FSA last July, some lenders have withdrawn self-certification mortgages, also referred to as liar loans. These permit borrowers to state earnings without being subject to verification. They became popular during the boom in the housing market and the subsequent financial crisis is partially attributed to these. Self-employed income is now taken into account only after a two-year record of earnings, verified by tax returns and accounts.

The FSA proposals also suggested the ban of fast-track loans, which require low-risk applicants to provide less documentation. Sources in the industry believe that the final rules, due for release this fall, will not include this ban. Lenders are currently providing the regulator with evidence illustrating the improved performance and lower default level of fast-track loans, compared to income-verified loans.

During the past year, banks have imposed stricter criteria for their fast-track loans, which should widen the performance gap. According to one lender, only ten percent of its mortgage applicants qualify for the fast-track process. This lender offers fast-track option only to applicants with high credit scores and mortgages under 70 percent of property value.

In general, banks only offer fast-track loans up to £500,000. They also place brokers on notice, stating that income verification may be requested at any time for fast-track applications. The Council of Mortgage Lenders stated that banning fast-track loans would increase lender costs, ultimately reaching customers. FSA Chief Executive Hector Sants reported that any changes in the rules will not take place before 2012.